Velocity Composites plc (VEL.L) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Velocity Composites plc Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it received during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet Company platform. And before we begin, as usual, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. I would now like to hand you over to the Board of Velocity Composites plc. Andy. Good morning, sir.

Good morning, everyone, and welcome to the 2024 first half year results presentation. Before we kick off, I'd like to remind people who we have today. So we have myself. We have Jon Bridges, Founder and CEO, and we're really pleased to have with us Rob Smith, our new CFO, who has joined us very recently. And as you can see there, the longest CV of all of us and heavily extensive experience within manufacturing and international manufacturing as well as being a recognized and successful CFO of multiple AIM companies and also as CEO as well. And not to guess that on our Board, we have 2 very respected aerospace experts in terms of both procurement in terms of Annette Rothwell and operations management and sustainability and composite knowledge in terms of Dr. David Bailey. So I'm going to hand you over to Jon, who's going to lead through the first part of the presentation and Rob is going to cover some of the numbers and I'll join you later on. Let me.....

Thanks, Andy. Good morning, everyone. So first of all, just a few slides just to recap for any people not familiar with the company who we are, what we do. So as the name suggests, we're in the advanced composites business within Aerospace, really, which is substituting aluminum as the main raw material for aerostructures. And that increase in the use of composites is growing, and there's some slides that we'll talk about in a moment. And what you see there in the diagram is how those composite materials are spread over a typical airliner nowadays. So 50% by weight, but as you can see pretty much the vast majority of the primary structure is composite materials. And the reason why it obviously improves performance, improves range, reduces fuel burn and is an important part of the moves to sustainable aviation. And what Velocity does is we sit within the supply chain of those raw materials and are focused on removing waste from our customers. And again, we'll talk about that in the slide in a moment. But typical savings are greater than 10% material costs just by removing the sheer amount of waste that ends up not flying, but also reducing the process times and both of those are important as the industry ramps up to meet the challenges of the production rates that it faces. It also brings greater consistency. We bring a very well-polished standardized approach to the preparation of those materials and the procurement of those materials to really give our customers not just those efficiency benefits, but also the consistency that sort of data management, the traceability benefits of a very well-regulated industry. And as we feel from discussions with our customers and potential customers, there is a real need and want for that outsourcing now is they look to sort of define their future businesses, what is their core business, what is and how they -- and as a collective supply chain for the whole industry meets these important and positive challenges of significant growth within the use of composites. As we sort of -- as we scale FY '24, this year, we're going to be GBP 27 million in terms of our turnover with our contracted business. Last year, it was GBP 16.4 million. So we're growing and that's GBP 27 million on a full year basis. Contracted business is GBP 33 million next year. So we are growing significantly and have grown significantly. And we also have a very strong pipeline of new business with existing and new customers, which, again, we'll talk about later. But it is a very large multibillion-dollar multinational industry, which we're addressing. And internally, we've talked about it and we're focused around delivering on our 5-year target of -- to be GBP 100 million business with the 10% margins as we grow in scale. Just trying to get my keyboard to work, there we go. So again, for those not familiar with the company, this is where we sit within this large industry. So there's already a well-established, very successful group of material suppliers, most of which are there and some other smaller ones. So we're not a material supplier, and we don't make parts, where we sit is between those 2 groups of people to procure, to manage, to transition those raw materials into the form of use for our customers to make the parts in a much more efficient way. So you can see some of the large global groups of Aerospace and customers and potential customers of ours there. And to do what we do, and there's some graphics around it in the moment. But essentially, it's all about managing that procurement of the raw materials, which are expensive and on long lead times to use that technology to procure that much more effectively and to not over or under procure over those extended lead times. To manage that inventory, it needs to be controlled. It needs to be stored correctly. It needs to be in a lot of cases frozen to preserve life, manage that demand from our customers as well, again, over those extended lead times. And then really, it's about using those raw materials to premanufacture the kits required for our customers to manufacture the parts and all the other associated activities there about managing the finished goods, warehousing and transport and then the on-site support of those kits as well, again, on behalf of our customers. So we manage all that. As I say, they're very long lead times, which is part of the challenge. And really what we're substituting here is from our customers having to do that themselves to recognize that's noncore business and for us to manage it on their behalf using our technology to drive. [Technical Difficulty] Improved. And as it says there in red, pricing agreements. So there's no advantage of anyone buying this differently from like a distribution model. This is all about value add and delivering that to customers under that controlled pricing. So we don't get squeezed. It's all negotiated on our behalf, it all passes through, and it's about utilizing that material much more effectively to make sure much more of it ends up flying on the finished aircraft. And what's driving this move to composites is a huge push for net zero by 2050. And as you can see there, these both Boeing and Airbus have very detailed market forecast information, which you can download on their websites. Essentially, what you're seeing here -- there on the chart, you can see, not only are we seeing the fleet size double, but the amount of composite within that fleet double as well. So essentially a sort of a 10x growth in the amount of composites that will be flying by 2041. And that brings opportunities, of course, for us, but also we need to help the industry utilize that material a lot more effectively and control it's use and the sort of data management around it's use to make sure that, that's done in a sustainable way with excellent traceability and our processes and technology helps drive that on behalf of our customers. Okay. So that's the introduction to Velocity for any new people. And then in terms of our H1 highlights for the year, clearly, revenue has grown significantly as we not only see rate growth in Europe, but also the onboarding and transport of our large launch projects in North America. Associated with that as we work through improved efficiencies as we grow, but also as the inflation pricing gets passed through the inflation that we've seen over the last few years works through into new contracts. We're seeing our margin improve and continue to improve there. The H1 is always going to be H2 weighted because of the growth in the transfer of the program, but still a significant improvement there in sort of the H1 EBITDA. And as we talked about recently in the Mello presentation, but also at the sort of year-end in January, the huge program in the U.S., which we're working through progresses well. And the AI process and also the ramp-up and the transfer process is continuing to add to those figures as we grow and onboard all that work. FY '24 guidance remained unchanged. As we say, we're deep through that program now and sort of turning that corner into the sort of finish line as we get through the FAI process. And we still expect and everything we see is around the profitability and the cash positive trading in the second half, which Rob will take you through in a bit more detail. And you're over to Rob.

Thank you, Jon, and good morning, everybody. So as Jon has just said, the sales grew half 1 2024, 54% versus half 1 '23, largely driven by the onboarding of the U.S. customer. Margins improved year-on-year, as we saw greater facility utilization in the U.S. going up the learning curve, et cetera. And we expect that improvement to continue into H2 '24. The EBITDA loss reduced considerably again through volume, and I'll take you through in a little bit more detail on that in a minute. Cash at the bank improved. That was largely as a result of the funding that was received in the second half of '23, less, of course, the investment in the factory in the U.S. and working capital. CapEx expenditure, you can see first half of '24 was quite quiet as opposed to '23, which was a big year for CapEx. So looking more into the detail of the income statement. You can see the cost of sales improvement there, which resulted in a gross profit of GBP 2.4 million as against GBP 1.5 million previous year. Administration costs increased. Now that was a direct result of the U.S. factory, the additional overheads in the U.S. to run the site over there. As a small amount of other operating income, which resulted from R&D credits, which are taken above the line where they're funded outside the U.K. All of that resulted in an improved operating loss, reducing from GBP 1.3 million to GBP 861,000. Increase in finance expenses, that was largely as a result of increased rates plus the fact that we've got higher working capital utilization in the U.S., where our customer has funded the receivables. All in all, a loss for the year of GBP 1 million versus 1 -- for the half year of GBP 1 million in 2024 versus GBP 1.4 million in '23 and adjusted EBITDA of just under GBP 200,000 versus GBP 900,000 in '23. The balance sheet has stayed very controlled, a reduction in inventory since the full year and slightly up from H1 '23, reflecting the additional work that's going on. Trade receivables naturally increased as we have more customers and the tax receivable is the full amount of the R&D tax credit claim that we have in at the moment. That GBP 450,000 represents 2 years worth covering the periods '22 and '23. All in all, gross assets increased to just under GBP 800 million -- just under GBP 8 million from just under GBP 6 million in previous year. So a strong balance sheet. The loans refer to -- that's the current portion of CBILs that we took out during COVID and trade payables follow the utilization of working capital for the new contracts. So all in all, controlled balance sheet, some improvements still possible, and we'll be looking to work on those over the coming months and years. The cash flow summary set out for you there, which really just explains the income. So the reduced operating loss meant that we've got through this cash running the business. Movements in working capital saw some outflow during the period, but not huge considering the size of contract that we took on, giving us an operating cash outflow of GBP 400,000 -- just under GBP 500,000 versus GBP 1.8 million in the year ago, half year. And a small amount of cash used in investing activities is repaying interest and -- sorry, a small amount of cash outflow in investing activities and cash used in financing the business. So the repayment of the receivables is the main chunk of that as well as interest. So our cash moved down from GBP 3 million to GBP 1.8 million, but we expect cash generation in H2. So all in all, a very good position. So I hand you back to Jon.

Thanks, Rob. So I think we've covered a lot of the highlights so far, but our focus for FY '24 and the remainder of remains strong and as we've indicated previously. So yes, yes, we've grown as that project transfers and then the rates improve in Europe as well. But it's all around delivering the sort of U.S. projects and moving on to other projects there and both in Europe as well. So we've done a huge progress in using the sort of challenges of the previous few years into our contracts going forward to mitigate any inflation lag, but also move to more of an annual review rather than a contract renewal review to build that into future agreement, which our customers fully understand and agree with. So that's been huge progress there, and will assist going forward. We announced previously in the year another big milestone of an OEM approval to allow the sort of final chunk of FY '24 transfer and FAI to take place in the U.S. that's sort of progressed very well and now moving through the ramp-up post FAI to complete that in FY '24 as well. So again, that OEM approval was a big milestone, of course, to achieve. But again, we can use that going forward with other customers once we approve at the OEM level. Obviously, there's been some well-publicized issues in parts of the global supply chain associated with Boeing. That has no impact on our current FY or FY '25 contracted business, but it does have a bearing on future business. So whilst we've made some good progress within some Boeing supply chain customers. Whilst those bids are still current, they're obviously parked whilst those issues are resolved at the regulatory level. And of course, the whole industry needs both manufacturers to be building aircraft. So we wish for a swift and safe conclusion of that work. But that does mean that we've switched a little bit of focus there to non-Boeing supply chain going forward of which there's still huge opportunities. But also, as we said previously within Europe, it's around more business with existing customers, which progressed as well. So that is still progressing well. But we -- again, we're forecasting on contracted revenue and those ranges remain unchanged as we move forward. And so in terms of conclusion. I'll hand you back over to Andy to pick up those points.

Thank you, Jon. Thank you, Rob. So in terms of this year, we're still on track for approximately GBP 27 million revenue, which will be up from the GBP 16 million. You can see the half year is up 50%. You can see that in the first half of the year, losses being slowly eliminated. But the run rates that we're starting to hit and expected in the second half of the year, we should be in clear profitability. And that will be a very important milestone for the business. It will then move into cash generation as well. We have to -- and I just look at some of the questions, I thought I'd cover one here. Remember that we were helped very significantly by a large U.S. customer, who was also a customer in the U.K., who supported the company with a very generous cash flow package in terms of supporting the inventory financing themselves and then only transferring that across to us in terms of our need to finance it ourselves once we've ramped up and started to generate cash. So in fact, the cash generation in the second half of the year that Rob speaks about is also net of onboarding more of the burden and the full burden of the working capital of a new large contract in the States. And that's why that again is a great achievement. And of course, once that's done once, it doesn't need to be done again, which means in 2025, we should be generating quite a few million of net cash. And we also have the undrawn facility in the U.K. of GBP 3 million, which can be expanded further if we needed it to be. It reflects the size of the U.K. business and would support additional work also in Europe because it can finance our U.K. business and release cash if we have new business starting up anywhere really in Europe coming out of the U.K. So we have -- thanks to refinancing last year, turning to profitability. We're starting to have a strong balance sheet, strong cash flows, a lot of dry powder there to expand the business in the short term, exploit the fact that we have 3 now facilities, which could all be expanded as well. And we are certainly well on track to start to achieve some of our key objectives, which is a 10% EBITDA margin. It's a 25% return on capital employed, as we go into -- as we look into 2025. And I think that what we are also seeing strategically is very important here is customers recognizing and valuing the efficiency gains that we help them achieve. And there are certainly challenges within the Aerospace industry in terms of ramping up production. And you'll see -- you're seeing OEMs under pressure there. So Spirit being sold to Boeing and then broken up, so part of it sold back on to Airbus. You're seeing across the Airbus supply chain challenges in terms of trying to hit new numbers, which they need to hit and even in defense now in programs like the F35, where actually production rates are maybe 20 planes a year below what they need to be now for the next 14 years. So all that points to a need for greater efficiency ways to open up the invest in supply chain to increase output. And this is exactly where Velocity is positioning itself. And so the success of the Tallassee project, which actually has those outcomes now helps us not just with that customer, but with other customers. And one of the other things that, that Tallassee project gives us is though, yes, it's one customer and we also work within the U.K., where it actually opens up 3 or 4 key new large OEMs because we work in partnership with GKN in the States and we both share the fact that ultimately, we're looking to deliver service to OEM manufacturers as service providers and engineering providers. So we actually have more OEM exposure and different exposures now and a larger range of those than actually we did 2 years ago. So -- and we see that continuing as well. So even though we may work through 1 or 2 major Tier 1 manufacturers, we're actually expanding the number of platforms that we're providing our technology to ultimately. And again, that strengthens the ultimate portfolio and the portfolio risk for ourselves. So I feel we are very much on the front foot now, very much feeling confident in the next phase of growth and we are delivering that growth. And another key point is that even the current contracts that we have all have opportunities of growing themselves, particularly in the States, where there is upturn in volumes, our customers winning new business as well. And that -- it means that there is organic growth opportunity now in '25 and '26 just based on the current contracts with the opportunity of further new contracts coming through in that time frame as well. So I'd like to thank you all. I pass you back to the main speaker.

Perfect. Andy, Jon, Rob, if I may just jump back in there. Thank you very much indeed for your presentation this morning. [Operator Instructions] I would just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your Investor dashboard. Jon, Andy, Rob, as you can see there, we have received a number of questions throughout your presentation this morning. Thank you to all of those on the call for taking the time to submit their questions. But guys, at this point, if I may just hand back to you just to read out those questions and give your responses to where it's appropriate to do so. And then I'll pick up from you at the end.

Okay. Thanks again. So I'll sort of manage the questions. I'm not necessarily going to answer them. And -- so I think the first question, Jon, a classic question we get from all investors really is maybe just a discussion around, what -- when we say we have this pipeline, GBP 200 million at the moment qualified, what really is that? Obviously, no one expects you to name customers and say, this might just happen here or there. But just to explain the amount of work that has actually gone in the last year into various new customers. And why we believe we do have that strong pipeline?

Yes, of course. So yes, I think there's obviously a lot of commercial sensitivities around that, both -- obviously for us and the customer. But -- as we've talked about before, the focus is obviously customer beyond our launch customer in North America. And again, as Andy said, the fact we've opened the facility now, it answers a lot of questions that customers had or potential customers had prior to that. So the fact that, that site is open, it's delivering, it allows us to look at the next customers. In the appendices of the presentation, there's some indicative maps there of potential customers around close to that facility and also that can be initially serviced from that facility. So we have been progressing there. As I mentioned earlier, it's been -- some of those have been paused whilst the regulatory issues in Boeing are resolved, but we're expecting that to be a transient issue. And obviously, of course, until everything is resolved successfully to the regulator. But again, we've made some good progress and some nice strong mutually beneficial bids are in place there. But then when we look beyond the Boeing supply chain, there are other large customers in the area. And as we've talked about, it's about working through those TCO business cases and getting those in front of those customers for -- to launch the initial programs. Whilst, of course, a huge effort is still ongoing to -- well, to have completed the FAI, but also to ramp up the transfer from our launch customer as well. So yes, the sites over in the U.S., our customer sites and potential customer sites are orders of magnitude larger than what we see in Europe. But again, we've got to be selective really in who we approach, when and how to make sure those business cases land and are deliverable afterwards. But that work has continued. As Andy said, we'll obviously announce progress when it gets to the sort of contractual level. But nothing that we've seen in the last year changes certainly in my opinion, that there's a huge amount of opportunity there with customers who are open and very, very receptive to seeing this as non-core business and part of their solution in their own ramp-up. In Europe, that's obviously continued as well, and we'll again announce progress. But as we said, there's significant opportunity with existing customers, and that's a combination of smaller scale business cases as we complete full site transfers or new packages of work with existing customers, but there are also some larger opportunities we've been progressing as well. And again, those will be updated when they reach their contractual stage.

Okay. Thanks, Jon. I'll just cover a couple of questions. I'm going to bring Rob in. I noticed one late question that's coming is where I described the U.S. facility. All our major customers, we see -- we're working in partnership with them. That does not mean that it is a legal JV. But the very fact that what we're doing is taking on their front end from supporting their procurement to ensuring that they can double or triple even their stock turns, that they can eliminate quality issues. We see ourselves more than just a supplier, just someone who's -- we make these widgets to sell them to you. We see ourselves in that context of a genuine partner, which everyone, I know many, many people and companies claim to be a partner of someone else. But it is in that context. So it's not a JV. Someone said, I didn't realize it was a JV. It's not a JV. It's merely the -- that's a very big facility. We've been heavily supported by our customers to get it set up. It isn't -- there's no stake from the customer in the facility, but it's just the way that we operate together as in a partnership to work together in servicing the industry. In terms of other questions. One of the other questions, which has come up is around the size of our facility in the U.K., and we will be considering utilizing it. I think I explained it before. It's there to be used with the cash that we're generating as well and raised. And if you look at the cash that we raised, it got utilized, but now it's coming back now as we absorbed that contract and expand that cash comes back into the bank accounts. And then we paid off the U.K. facility. So we really still have GBP 5 million, GBP 6 million potential by the end of this year or early into next year of cash capability. The -- I did cover the purchase of raw materials. So we were supported and have been supported by our customer in the States in terms of that ramp-up. It was always once we can get the stock turns up and the efficiencies in that we would take on the full cash cost of that. And that is fully costed within these projections that we're talking about. And in fact, I'll pass you now to Rob, maybe you can talk about you've done a deep dive joining us on cash flow management and anything else. And how you feel that's looking now for the next 6 months?

Yes. So clearly, the cash is always going to be critical as we go through this phase. We have utilized cash in the first half in growing the business, particularly in the U.S. We have done, as Jon and Andy said, a deep dive into the numbers and looking at those, clearly, we start going to move into profitability. We do take on more of the procurement of inventory directly ourselves. So the very generous terms that our customer has provided to us, we move on to slightly less generous terms. So there will be a lag in cash generation, but we're still expecting generation cash in the second half, and that is just driven by profitability and being more efficient in the inventory purchases.

Great. Thanks, Rob. Jon, do you want to just cover again the disruption that Airbus had warned about and their challenges and your reiterate how we feel that is a positive for us?

Yes. So you've probably seen the news of, say, A350 ramping up and then subsequent sort of review of their number. There's still a huge ramp-up even if you take the sort of cautious end of that guidance. But as we're saying, it's a challenge for the whole industry. Nothing that we're seeing in composites is affecting that. It seems to be a metallic-driven challenges also around engines as well. So it's just an example of any ramp-up is only as quick as its slowest component. And we've seen those issues curtailing the scale of the ramp-up, but it is still a huge ramp-up on that platform, which everyone's minded and anyone who's on that program has already got their rate readiness plans in place to support. So yes, it's not something from composite, but from a wider perspective, then it will ramp up as quick as the slowest component. From our point of view, we have capacity, as we've talked about. Our plans are already in place to meet those rate increases on behalf of customers. And we also look forward to the single aisle doing the same increases as well and particularly the resolution of the Boeing supply chain issues and that platform moved from the sort of late 30s a month to the 50s and 60s a month and beyond.

Great. I know someone put a question about noting the higher fixed costs that have been coming through. Obviously, the main element of that really is just establishing a U.S. facility. And as we're probably still doing quite a lot centrally, so it's not just a duplication of everything in the U.K. and States. A lot of their finance, procurement, back office work is all done centrally. Clearly, we do need some capability in the U.S., but we also manage things with a lot of capability from the U.K. and from Burnley. And therefore, we believe, as we now -- one of the reasons for the profitability flipping significantly in the second half of the year is taking those revenues and being able to spread large amounts of revenues over an element of fixed cost that's in the system. So we don't expect overheads to continuously ramp up at the same speed as revenues. Clearly, you have to manage growth and there always is a need to invest in people and develop the team and not become constrained in that. But each year, we also have cost down initiatives ourselves like you expect with most manufacturers. You can see that another question is, how big is our largest customer? And I think I've explained this before. Our largest customer, once the U.S. is fully ramped up, will be more than 50% of revenue. However, if you look beyond the immediate customer into the actual programs that we and that customer are qualified on, and if you think about the FAI process that we've all talked about quite a lot, and the Aerospace qualifications, they're all to do with the OEMs. So whether that's like the Sikorsky helicopters or a Hondajet or a Boeing or an Airbus, all these different final manufacturers and assemblers who -- and we're -- we've doubled probably the number of those through going into the U.S. So though, yes, the actual concentration of our Tier 1 customers is very tight. The OEMs behind that we're actually increasing and therefore, getting more qualifications onto our books, and they're broadening the opportunities there for long term for us with other customers, whether they're the Tier 1 manufacturers that we supply, whether they're the OEMs themselves. I think someone has asked about the 10% EBITDA margin, is at the maximum, is at staging point? One of the things that we are focused on is not just EBITDA margin, but the return on capital. And Rob, do you want to -- you've looked at that in the forecast, the return on capital, haven't you? And do you feel that's going in the right direction to for 2025?

Absolutely. It's definitely a focus, and it is going in the right direction. We're exploring targets at the moment and will drive towards better return on capital employed. The whole ethos of the business is on efficiency of production, using just-in-time methodologies to make sure that we turn inventory far greater rate than our customers are used to. So we typically talk of customers turning inventories 4 to 5 times a year, and we target 10 times a year. And -- so we drive the return on capital employed through that metrics.

And that's not just for us, but also benefits our customer.

Indeed.

I can see someone has actually written and asked about capacity. As we've talked before, the current 3 factories could, in theory, double their output. Obviously, you have to have some more machinery, but also one of the main ways of doubling the output is more shifts. Jon, do you want to cover how many because it's actually the number of shifts that can significantly change the output as well, isn't it, not just machinery themselves?

Yes. So -- as Andy says, we know with the sort of infrastructure costs, there's the ability to double. Obviously, that's with 24/6 working. Currently, sites are probably 1, 1.5 shifts, but we do, as Andy said, with probably more freezer capacity, more shifts, maybe some equipment capacity, those current term capacities can be increased significantly without the cost of more sites, more clean room space, et cetera. So the fourth machine has just been installed in the U.S. as part of that ramp-up. That obviously brings an extra, do the math 25% capacity there per shift. But obviously, as those shifts grow as well, an additional machine does improve that significantly as well. So that's all costed into those rate increase plans and the transfer plans accordingly. But yes, relatively minor investment in shifts gives us much larger capacity for shift working.

Okay. Next question is about the size of contracts, duration size. So very nature, when you have long-term contracts that often start off at 3 or 5 year initially, is they then tend to get renewed and extended. And so the most -- so yes, our longest-term contract is probably only 5 years. So we do believe we can, with new customers potentially, extend that initial contract to even aim for 8 years or higher. But then it's more the fact that, obviously, they've transferred the business to us. We're now the qualified partner in that, and they even themselves may not qualify to the bit that we now do that we then enter this long-term contractual relationship, where you find that the contracts -- renewal of the contracts is merely yes, that's a point of negotiation of terms and conditions. But Jon, you've been moving everyone really on to the template that we used in the States. You've spent a lot of time working on, haven't your?

Yes. And I think the wider team as well, it's been an important transition. I think, as Andy said, when our customers make this decision, it's a very strategic long-term decision to outsource this. It does become non-core business to them. And so they lose the capability, and they're happy for the Velocity to take up the supply of those products. And as Andy also said, during that time, we do build very deep relationships with all levels of that organization. These are quite large organizations, not just are you delivering into the operations team, and you're not under the guidance of the procurement teams, but you've got the quality teams. You've got engineering teams. You've got a myriad of lots of different relationships, managing demand, managing procurement. All those -- that deep strategic relationship is important because we're managing the first part of their process and the 6 months of raw material lead time that goes with it. So our technology and our way of working is seen as the sort of the yardstick in performance, but linked to that is building these deep long-term strategic relationships to the point, where the contract renewals are term renewals, we do see those rolling on with ease because by that, I mean, we make it easy for customers to roll them on because all the work has been done and all the sort of review points and pricing points are covered on an annual basis to the point, where the term is just a renewal of term. And again, we don't take it very lightly. But as Andy said, there's a lot of work goes into the transition. We talked about the FAI and the ownership of the supply chain and the improved capability to deliver the products, that would obviously all need doing in reverse, should that strategic decision be reversed by the customers. So again, as long as we're performing, we keep maintain those deep structural relationships, keep delivering the products, the high quality, the right first time, the on-time in full performance remains as high and industry-leading as they are, then again, the strategic decision is maintained by customers, and we've become that very close partner in meeting their long-term operational improvement and delivery performance of the supplier.

Fantastic. The next question is really just about the split geographically of the pipeline. And if I just answer that. In terms of shorter term, it's probably quite evenly balanced with Europe and the U.S. And just to be clear, it is Europe and the U.S. that we're focused on, including obviously the U.K.. And in the longer -- more medium to long term, the U.S. is by far the larger opportunity. But in the maybe medium term, we've got some big opportunities still within Europe, particularly with current customers. Longer term, I would say that you're more looking at 75% plus in the U.S. Would you agree, Jon?

Yes. I think, it's just a recognition that there's some very large diverse sites over there compared to Europe, but that doesn't mean that we won't continue to grow in Europe as well. I think our service is location agnostic. It's the same service wherever we operate, same specifications, same approvals, and we -- the plan is to continue to grow in both areas.

Fantastic. The final question about when do you expect to pay dividends and what your policy be in terms of cover? I think that we're not, at the moment, laid out that policy. We would -- it would be great to get to a position, where we could pay a dividend. But equally, at the moment, the generation of cash is about then funding growth. But we certainly don't discount the opportunity to potentially pay a -- some form of dividend, which would open up more types of investors for us, particularly on the AIM. So there's a strategic value to doing that, though maybe at modest levels, if you want to reinvest, particularly if we can achieve the 25% plus return on capital, then it is common sense to reinvest that dividend -- sorry, that cash flow. But we certainly would probably love to really visit this question in maybe 12 months' time to see where we are at that point. So I don't know, Rob, what's your views on some people pay dividends and some not?

Yes. I mean the textbook answer is if we can get a better return for investors from investing and growing the business, that's what we should do. However, clearly, there are some funds on AIM that we would like to tap into that have a policy of only investing in businesses, which do pay a dividend. So we have to balance those 2 drivers there. And I can't mention us paying a dividend for this year or next year. But into the longer term -- medium long-term, I think as the business turns into a solid cash generator, yes, it would be something that we be minded to do.

Yes, I agree. And I think, as I said, it's something to visit next year, balanced with the opportunities that we have at the time and how we're doing. But what is important here is we're heading into a position where we can make that decision. We can make a look at that. We will have earnings that we can distribute and cash that we are generating. And we would have paid down our COVID CBIL loans as well. So at the moment, obviously, some of our cash is going into that. paying all those loans back that we were very grateful to receive in support of the company at the time. And -- but in the long term, we'll have that cash, we will be free as well. And so maybe that's the sort of free cash flow at the moment we're paying off the loans could be used to look at the dividend in the future. So I think that's all the questions that have been put to us, and I think we've answered them all. I'll again hand back to yourselves.

Perfect. Andy, Jon, Rob, absolutely. And thank you very much indeed for being so generous of your time there and addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But Andy, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Yes. So again, is a thanks to all our long-term holders, people that have supported the company during the period of COVID, in particular, in that certainly a difficult time. We got through that. We won the big contracts in the States that is now becoming a very big success with that customer and seen in industry as a showcase. We now have 3 facilities that we've opened in the last 10 years, because the Burnley one was a new facility 10 years ago, then 1 in the South of England and now 1 in the U.S. We have developed our services very significantly to digitalize them as well, take advantage of some of the latest technologies that are available. And we really now feel that we are at that crossover heading back into profitability and hoping to start to think about posting record years going forward. And therefore, that has been a very tough journey. But what it's done is it's given us, we think, a strong moat in terms of the competition and a great opportunity, as you see us growing the business very rapidly still and yet starting to look at generating cash as well. So I thank you for listening today. I thank you for being patient in the time taken to get to where we are now. And hopefully, we can all enjoy the benefits of moving into profitability in the next 6 months.

Andy, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Velocity Composites plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.